4. The Additional Funds Needed (AFN) equation Blue Elk Manufacturing has the following end-of-year balance sheet: Blue Elk Manufacturing Balance Sheet For Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents $150,000 Accounts payable Accounts receivable 400,000 Accrued liabilities Inventories 350,000 Notes payable Total Current Assets $900,000 Total Current Liabilities Net Fixed Assets: Long-Term Bonds Net plant and equipment $2,100,000 Total Debt $250,000 150,000 100,000 $500,000 1,000,000 $1,500,000 (cost minus depreciation) Common Equity Common stock 800,000 Retained earnings 700,000 Total Common Equity $1,500,000 $3,000,000 Total Liabilities and Equity $3,000,000 Total Assets The firm is currently in the process of forecasting sales, asset requirements, and required funding for the coming year. In the year that just ended, Blue Elk Manufacturing generated $500,000 net income on sales of $13,500,000. The firm expects sales to increase by 18% this coming year and also expects to maintain its long-run dividend payout ratio of 30%. Suppose Blue Elk's assets are fully utilized. Using the additional funds needed (AFN) equation, the increase in total assets that is necessary to support Blue Elk Manufacturing's expected sales is $ . (Hint: Do not round intermediate calculations.) When a firm grows, some liabilities grow spontaneously along with sales. Spontaneous liabilities are a source of capital that the firm will generate internally, so they reduce the need for external capital. How much of the total increase in assets will be supplied by spontaneous liabilities for Blue Elk this year? (Hint: Do not round intermediate calculations.) $64,800 $68,400 $79,200 $72,000 Now, Blue Elk expects to generate a positive net income next year, and to distribute some of its earnings as dividends. It will retain the remainder of the firm's forecasted net income (as retained earnings) for future asset investment. As the company generates more internal funding, it will have less to raise externally via the capital markets. Assuming that, next year, Blue Elk's net profit margin and dividend payout ratio will be the same as this year's values, then Blue Elk is expected to generate $ of additional retained earnings financing. (Hint: Do not round intermediate calculations.) According to the financial forecasts for Blue Elk Manufacturing and the AFN equation, next year, the firm will need to raise $ in additional external financing. (Hint: Do not round intermediate calculations.) Grade It Now Save & Continue